3. Assume ao =0 and w, w+&, where & are independent, identically distributed shocks that take value +A or -A with equal probability (so E(&) = 0). Suppose at t=0 we get a negative shock &=-A. - What would the optimal co be? What a would we need to make that possible? - Is that compatible with the liquidity constraint?

3. Assume ao =0 and w, w+&, where & are independent, identically distributed shocks that take value +A or -A with equal probability (so E(&) = 0). Suppose at t=0 we get a negative shock &=-A. - What would the optimal co be? What a would we need to make that possible? - Is that compatible with the liquidity constraint?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.9P: Precautionary saving and prudence The Query to Example 17.2 asks how uncertainty about the future...

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